The New Telecom Oligarchs

April 3, 2013

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The Comcast Center, second left, in Philadelphia. (AP Photo/Matt Rourke)

“This is simply too much, too big, too powerful, too lacking in benefits for American consumers and citizens,” I said as I cast my no vote on the market-altering Comcast-NBCU merger in January 2011. Mine was the lone dissenting voice as the Federal Communications Commission approved the deal by a four-to-one vote.

I still remember the day when the top brass from Comcast and NBC-Universal came calling on me at the FCC. As I listened to Comcast CEO Brian Roberts and his cohort, I began to understand the daunting breadth of the transaction they had devised to combine Comcast’s vast programming and broadband cable distribution networks with the assets of General Electric’s National Broadcasting Corporation and Universal Studios. This went breathtakingly beyond any deal that I had seen before. It was telecom and media combined; content and distribution; horizontal and vertical integration; broadband, but also broadcast; traditional media, plus new media; news and information, as well as sports and entertainment. It was the power to corner markets, quash competitors and dictate prices to consumers. Here, clearly, was the merger of mergers, creating a powerhouse without precedent in the world of communications.

My opposition to the unbridled merger mania that had wreaked such havoc on consumers and competitive enterprises was a matter of long public record. For eight years I had been in the Democratic minority at the FCC, unable to rein in the enthusiasm of my GOP colleagues for ever more media industry consolidation. But wasn’t that supposed to change after the 2008 election, when I was part of a new Democratic majority? Why were we even voting on an item to approve this massive combination? After all, I had a file folder filled with letters and statements from Senator and candidate Barack Obama indicating that if he was president, the brakes would be applied to this merger mania. He had expressed deep concern about the rush to approve mergers, and he was on record in support of new and more diverse media outlets. He had also recommended that the FCC should “complete a proceeding on the responsibilities that broadcasters have to the communities in which they operate” before even thinking about approving new mergers. Those public-interest responsibilities got short shrift in the commission’s four-to-one approval of the Comcast-NBCU behemoth.

Federal regulatory agencies make definitional decisions in the lives of Americans. But they are little covered by our diminished media; and even when the stories are told, they tend to be told from the perspective of the powerful. That’s what makes Susan Crawford’s book Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age so remarkable. She gets the facts straight—I know, because I was there. But she also does something just as important: she puts the facts in perspective, providing readers with an analysis that is essential if we are ever going to forge communications policies that serve all Americans.

With a discerning eye and sure hand, Crawford deploys her considerable legal, academic and telecom industry knowledge—plus her stint as special assistant to the president for science, technology and innovation policy in the early Obama White House—to illuminate how an ever-shrinking number of industry giants have used their money and power to put consumers and government in a stranglehold. The author finds stark similarities between the railroad baronies of old and the communications oligarchies of today. Then she takes us through the story of the Baby Bells (offspring of the Ma Bell telephone monopoly after its breakup in the 1980s), the rise of cable, the broadband revolution, the eternal jockeying for market control, and the failed attempts by heavily lobbied government regulators to come to grips with fast-changing technologies and equally fast-changing business plans.

* * *

Coming in as a new FCC commissioner in 2001, I was on fire to protect consumers and advance the public interest. But I quickly discovered that I would be spending much of my time listening to a seemingly endless stream of big telecom and media types walking me through the supposed blessings and bountiful efficiencies of their latest merger-and-acquisition plans. The acquiring CEO always did most of the talking, while the head honcho of the company that was about to be swallowed limited himself (there aren’t many “herselves” running these mega-companies) to a couple of assuring nods of the head and perhaps an occasional “amen” thrown in. More often than not, the latter was on the way out, albeit financially assured of living happily ever after.

Before they picked up their briefcases to leave, my visitors would assure me that this transaction would solve all their problems and they would not come back looking for more consolidation later. But they did come back for more. So did their business rivals. Often, as soon as the commission approved one merger, a competitor would march in, shedding crocodile tears that it would be undone by the pending deal and that the only way for them to survive was—you guessed it—to merge with somebody else. That proposal would be allowed too, and the cycle would start all over again. The FCC had morphed into a perpetual-motion machine for merger-and-acquisition approvals. It might have been comical had the results not been so destructive for our entire telecommunications and media ecosystem.

Here, in a nutshell, is what happened before we got to Comcast-NBCU: the bigger Baby Bell companies gobbled up their small wire-line competitors, and then each other, until we found ourselves in an environment eerily reminiscent of Ma Bell. The same contagion swept through the wireless industry, pushing so many M&A deals that any potential for robust competition quickly devolved into monopoly and duopoly control there, too (“Ma Cell,” it’s been called). AT&T and Verizon sit atop the wireless and many wire-line markets. Next was broadband, a technology launched with confidence that its intrinsic openness and dynamism would somehow grant it, and the businesses it spawned, immunity from the consolidation and gatekeeper control that corporate America had visited upon earlier communications technologies. Today we know how misplaced that optimism was: instead of competitive and consumer-friendly markets, we have a telecom-cable cabal that denies high-value broadband to many areas in favor of cherry-picking affluent, high-density—and highly profitable—markets. Up to one-third of US homes lack anything resembling the high-speed, low-priced broadband that consumers in many other countries enjoy.

Vigorous public policy oversight (the FCC’s job) and tough anti-trust enforcement (the Justice Department’s) could have put the brakes on all this. They didn’t. The public sector has been up to its ears in complicity, with regulators encouraging consolidation and blessing just about every merger transaction that came their way. (The thumbs-down on the totally egregious AT&T/T-Mobile merger proposal of 2011 was a welcome—but rare—exception to a pattern that shows no sign of real change.)

This carcinogenic combination of hyper-speculation in the private sector and a mostly compliant FCC, which has been AWOL from its public-interest oversight responsibilities, has left us with a telecom ecosystem bereft of meaningful competition, as well as a media environment in which a handful of huge conglomerates have gobbled up so many previously diverse and once independent outlets, dramatically downsizing their new operations, that the civic dialogue we must nourish to preserve self-government has been dumbed down beyond recognition.

Of course, my Comcast visitors had already vetted their proposal and arranged financing with the captains of Wall Street. They had spun it for the nation’s top business editors. But they still needed the stamp of approval from the regulators. I knew they would not have put this proposal before the commission unless they were confident that they, their lawyers and the Wall Street crowd backing them had crafted a proposition likely to pass muster. They had done their homework on the FCC commissioners too, fine-tuning their presentations to accord with each of our individual interests and holding out the carrot of a few concessions that they might be able to make during the merger-approval process in return for an aye vote. Some “conditions” had been added to sweeten the deal, but nothing that came close to offsetting its public-interest harms or that got materially in the way of Comcast’s original business plan to capture communications markets. When I suggested something substantive that might actually benefit the public—like breathing life back into NBC’s diminished and ailing news operations—they politely refused.

* * *

I had a front-row seat, from 2001 until 2012, witnessing the reconfiguration of our communications ecosystem. It is no secret that I found myself very often on the dissenting end of the regnant regulatory theory of the times. That theory was an odd mix of the free market’s “invisible hand” resolving all problems combined with an overlay of deregulatory hubris that took great liberties with the communications law of the land. Not even the Telecommunications Act of 1996 envisioned Ma Bell and Ma Cell as its outcome. The FCC went on to exempt the new world of broadband from just about all of the competitive and consumer-protection safeguards that had applied for years to telecommunications. No, the FCC majority stubbornly insisted, broadband wasn’t telecommunications; it was an “information service.” So they moved it into an unrelated and ambiguous section of the statute, where it could remain untouched by consumer protection, privacy and public safety provisions.

We became the only country on earth that short-circuited broadband development through a tedious, mistaken and totally unnecessary exercise in linguistic analysis. And we have paid for it dearly. The Organization for Economic Cooperation and Development currently ranks the United States fifteenth in the world in getting broadband out to all our people. Other ratings place us even further down in the rankings. It really doesn’t matter if we are tenth or fifteenth or twentieth; if America is going to dig itself out of the deep hole we are in, we need to be in the broadband vanguard—not so we can pin a gold medal on our chest, but to create jobs, foster competition and open the doors of opportunity to every American.

Susan Crawford knowingly dissects other aspects of the rationale behind these wrongheaded decisions. For one, there was a theory of “convergence,” premised on the belief that different communications sectors—telephone, cable, wireless, satellite, even electric power lines—would compete against one another to provide broadband across the land, thereby preserving competition and lowering consumer costs. It wasn’t companies that would compete against one another so much as technologies. The problem with this theory is that the companies were all becoming broadband enterprises, crossing the boundaries that supposedly separated technologies and making a mockery of so-called “intermodal” competition. Not only did firms within sectors continue to combine, but companies started buying one another across the imagined technology boundaries. The mega-combines that emerged found ways to avoid competition in specific markets, creating virtual (and sometimes actual) monopoly power. And they learned how to cherry-pick areas that could afford to pay for the kind of low-calorie broadband they were willing to deploy. So it should not have come as a huge surprise when Comcast made a play for the whole shooting match. It wasn’t just that our policies made this merger possible. Our policies made it inevitable.

Apparently, the merger has worked well for Comcast. Just a few weeks ago, the telecom-broadband-media behemoth announced its intention to acquire the remaining 49 percent of NBCU from General Electric for $16.7 billion. Most analysts had predicted this would happen eventually, but “eventually” came at a speed that surprised even industry analysts. ‘Twas a good day for shareholders, but considerably less so for cable customers paying for sports programming, rural Americans still without access to high-speed broadband, and journalists wondering whatever happened to support for their jobs and their craft. Looking back, I now understand why neither Comcast nor the commission ever claimed that consumers would receive lower cable rates as a result of all the “efficiencies” and “economies” the transaction was going to bring about. Comcast had other plans for those savings. In time, we will discover—and pay for—the other consequences of this merger.

Captive Audience held this reader captive from beginning to end. The broad themes make for compelling reading, but the entertainment value is in plots and subplots worthy of a thriller. Crawford also has a flair for making even difficult material understandable. Anyone who can make a page or so of easy reading from something as arcane yet important as telephone pole attachments should be up for a writers’ prize of some sort.

I hope that in Crawford’s next book she will turn her jeweler’s eye to the damage that media consolidation and misguided regulatory policies have inflicted on our democracy and civic dialogue. That’s a part of the story she tells in Captive Audience, but it deserves her separate attention. Those “efficiencies” and “economies of scale” that the Wall Street crowd keeps pushing Big Media to achieve through its many mergers have led to the shuttering of hundreds of newsrooms and the firing of thousands of reporters. Investigative journalism hangs by the slenderest of threads, and we have been consigned—or condemned—to a news and information environment in which glitzy infotainment replaces hard news, opinion masquerades as fact, spin supplants substance, and thousands of stories that could hold the powerful accountable go unreported. An informed citizenry is the prerequisite of self-government. Without vibrant media that dig for facts and tell truth to the American people, we don’t have a shot at resolving the many challenges our country confronts. It is not only an audience that’s being held captive—it is our democracy, too.

Michael J. CoppsMichael J. Copps was an FCC commissioner from 2001 to 2011 and currently heads the Media and Democracy Reform Initiative at Common Cause.